How do governments combat tax avoidance by multinational corporations?

Governments combat tax avoidance by multinational corporations by implementing international tax laws. These laws include measures that target certain areas of the tax system and how corporations use them to minimize their payments to governments. In Minnesota, the Department of Revenue administers two main types of international tax laws: tax treaties and domestic laws. Tax treaties are agreements between two countries to reduce or eliminate double taxation and provide for exchange of information between tax authorities. A domestic law is a law that applies to all taxpayers, regardless of their nationality. In the United States, the Internal Revenue Service enforces domestic laws. For instance, the U.S. has a base erosion and profit shifting (BEPS) rule that requires multinationals to pay taxes only in the country where the profits are earned. This rule is designed to prevent companies from manipulating their foreign profits to avoid paying taxes in their home country. Similarly, the U.S. also has laws to prevent companies from transferring profits to subsidiaries in low-tax countries. This is known as practice of “treaty shopping”. In addition, the U.S. has enacted a law called the Foreign Account Tax Compliance Act (FATCA) that requires foreign financial institutions to report certain information about accounts held by U.S. taxpayers to the IRS. This law is designed to make it harder for U.S. taxpayers to hide money offshore. These measures, along with increased cooperation between governments, have made it more difficult for multinationals to avoid paying taxes. By improving tax enforcement and implementation of laws, governments can more effectively combat tax avoidance by multinational corporations.

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How do governments combat tax avoidance by multinational corporations?

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